YMOYL Chapter 6: Valuing Your Life Energy By Minimizing Spending

New readers: This is an in-depth, chapter by chapter review and analysis of the book Your Money Or Your Life. Join us! You can buy YMOYL here, and you can find the first post in the series here. Finally, if you have any questions or issues about the book you'd like to discuss or debate, share them in the comments!

Meet your needs differently.

This is the central idea of Chapter 6 and one of the most important ideas in the entire book.

Are you the kind of person who's interested in truly creative solutions for managing your expenses? Can you determine honestly and objectively whether a purchase is a real need, or if that "need" is based on mere social conditioning or status seeking?

Can you look beyond that thing you think you want to satisfy the core need beneath that want? Do you even have to buy something to satisfy that core need? Very few of our needs are material.

Sincere YMOYL readers will systematically ask these questions about all of their expenses with one goal in mind: to get your costs down--way down--so you can accelerate your progress toward financial independence.

If at this point you're asking "How? How do I get my costs down?" that's for you to decide, and it depends on how creatively you choose to address this challenge. Are you the kind of person who demands money-saving tips to come to you, but then shoot most of them down? Or do you actively choose to seek out ideas to save money--and actually apply them? After all, tips and ideas are everywhere: the internet is filled with personal finance blogs offering advice and solutions on how to save more.

I think that might be one of the reasons the authors radically revised this chapter in the current edition. In older editions, Chapter 6 contained a huge 23-page section called "101 Sure Ways To Save Money" that was loaded with all kinds of specific money-saving tips. In the 2008 edition, they cut out that section and refocused the chapter on more thematic savings advice. After all, YMOYL is less about offering specific individualized advice and more about helping readers think differently. I'm guessing the authors would prefer to create enterprising, solution-minded readers who will seek out their own answers to getting their costs down. Teach a man to fish, in other words. It's implied that readers must seek out their own solutions for their own specific needs.

That one tip that sets you off
Of course, any list of ideas for saving money--it doesn't matter whether they're in "specific tip" form or "general theme" form--will have both hits and misses for any given reader. Some will resonate with you, some won't. Some will sound smart, some will sound stupid.

And some ideas will make some readers so angry that they'll literally give up on the book.

Laura and I have an acquaintance who literally quit reading YMOYL right here, in this chapter. Why? Because she stumbled onto a tip to cut your own hair, and for whatever reason, that tip literally set her off. She even wrote an angry email to me about it, saying she couldn't believe this book would suggest this--and no WAY was she ever, ever going to cut her own hair.

So she put the book down and stopped reading.

There are two layers of tragedy here. First (and worst) is how her reaction to a tiny and irrelevant part of the book caused her to reject the entire body of work. It shouldn't surprise readers that this acquaintance has made zero financial progress since. Which raises a personal question I'd like to ask readers: Do you really seek solutions as you work on your financial situation? Or are you waiting, just waiting, for the first sentence that pisses you off and gives you a "reason" to throw the book across the room?

The second layer of tragedy was that our acquaintance never attempted to explore her visceral reaction. Why did she put down the book? What was it about this specific tip that made her throw the baby out with the bathwater?

When you read something that makes you out-of-proportion mad (and money-related topics tend to do this to lots of us) it usually means you're scratching at some important inner truths. That trigger, that feeling, that emotion... there's almost always something there, if you're willing to explore it. There might be an insight into a problem, or a solution to a mental block, or you might have uncovered an unconscious mental script in your mind that's somehow holding you back. Dig, and find out what's going on there. I'm betting that mental script impacts other areas of your life too, and you'll be glad you uncovered it.

On impressing others: Let's spend a moment on the theme of impressing people, because it also has two layers: an obvious layer and a not-so-obvious layer.

As the book says, if you stop trying to impress other people, you will save thousands, perhaps millions, of dollars. Obvious. And yet when I look back on my Wall Street career, I can think of many, many well-educated, thoughtful and extremely bright people who spent enormous amounts of money impressing others.

Why? Well, in most cases they somehow managed to convince themselves they weren't trying to impress other people--while they bought stuff to impress other people.

Which takes us to the not-so-obvious part. Your ego will always try to convince you that you never try to impress people. After all, that's something only an insecure person would do. You (it will reassuringly tell you) being the confident and highly self-aware person that you are, would never do anything that shallow. Right? Yep, that's your ego talking.

An exceptionally self-aware Porsche owner (photo by Michael Goldsman).

Your ego, which understandably wants you to have a good self-image, will therefore work very hard to convince you that you need that gazingus pin. Or Lamborghini. Remember this the next time you try and tell yourself you're not trying to impress others.

A final word before we get to the Appendix/Side Thoughts. I'd love to hear your creative and unusual ideas to save money as you work through this book. I'm looking for all kinds of ideas, because you never know what might help--or set off!--another reader who reads this series in the future. It could be anything: how you eliminated your car and started using Zipcar, ways you've creatively reduced your housing costs, creative bartering or job-exchanging arrangements with friends or neighbors, how you rethought family entertainment, baby-sitting, or even how you started using Couchsurfing on your last vacation.

If you've got a creative idea from your life that's lowered your expenses and helped you meet your needs differently, share it in the comments!

Appendix/Side Thoughts:
1) Finding "quick wins" for saving money: There's no reason getting your costs down has to be unnecessarily difficult, so start by looking for steps you can take quickly and efficiently. Better yet, look for steps that serve you in multiple ways. A few examples: reducing the amount of meat in your diet, and you'll improve your health and save money on food. Using an inexpensive bicycle can help you save on gas, commuting costs, gym memberships and future medical bills. Buying a smaller home will save you tens (or hey, hundreds) of thousands of dollars on mortgage costs, energy costs and taxes. And so on.

2) On insurance: I could easily write a full post on insurance, but for now, let me just make this point: As you get out of debt and on your way towards financial independence, you will find you don't need the insurance you thought you did. Once you have several thousand--or even tens of thousands--of dollars sitting in the bank, you will be able to significantly increase your deductibles on things like auto and health insurance. This saves you hundreds or even thousands of dollars of per year in insurance premiums.

You'll also increasingly realize you don't even need to insure for many types of losses. Now that you're flush with liquidity--thanks to all the money you're regularly saving--what used to be a "catastrophic" loss simply isn't that catastrophic anymore. (PS: For more on this, I recommend Charles Givens' excellent books Wealth Without Risk and More Wealth Without Risk.)

3) Apply the "wear it out" concept to big-ticket items and save boatloads of money: Wearing a shirt for 30% longer might save you a few bucks, which is nice but not meaningful. But driving a car 30% longer (or heck, 100% longer) can drive gigantic financial results. Get your big ticket decisions done right and the smaller expenses don't matter so much.

4) Impulse purchases: According to the book, half of our purchases are spur of the moment (PS: I've found this clearly holds true with grocery shopping). This is awesome, because it opens up an enormous savings opportunity: by applying just a few minor techniques to minimize impulse-related purchases, you can slash your spending in half. Believe it or not, this tip is less obvious than it sounds.

5) Cost of children: There's a consensus out there that child-rearing simply has to be insanely expensive, which is one of the reasons behind this well-known joke about kids:

Q: How much money does it take to raise children?
A: All of it.

And yet if there's one thing my years on Wall Street taught me, it's that the consensus is often wrong. Often grievously wrong. With that in mind, I found it particularly interesting to read (on page 189) about how one couple applied the Fulfillment Curve to save tons of money on gift-giving for their children. Granted, Laura and I don't have kids, so I'm clearly out of my depth here--but I'd love to hear readers' views and ideas on creative ways to save money when raising children. And don't tell me there's no solutions out there.

6) Gift-giving: One more thought on gifts: one of the greatest days of my life was when my family changed our holiday gift-giving routine from "everybody buys everybody a gift" to "we put all our names in a hat and each person draws one name."

Suddenly, Christmas became one tenth as expensive and a million times less stressful. Recently, we took it one step further and dispensed with gifts altogether. Hey, the holidays aren't about gifts--they're about getting together with loved ones. Why not focus on that? What does your family do about gift-giving during holiday time?

7) On environmental stewardship and saving money: It goes without saying that the less you can consume, the better it is for the environment. From page 193:

Anything you buy and don't use, anything you throw away, anything you consume and don't enjoy is money down the drain, wasting your life energy and wasting the finite resources of the planet.

That said, don't let your concern for the environment make you into an easy mark for marketers. Keep in mind that "green" is slowly but surely being twisted into another aspirational market segment--designed to persuade you to spend more money of course. Don't be deceived: Should I buy a new one? is the wrong question. Do I need to buy this at all? is the correct question to ask.

8) "I'm enoughing" I love this expression and I'm going to start using it. Honey, I'm not going to buy that Fabergé Egg after all. I'm enoughing.

9) Lateral Thinking: One more book recommendation: Lateral Thinking: Creativity Step by Step by Edward De Bono. This book has heavily influenced my thinking on brainstorming, idea generation and looking at problems in different ways. Most of the ideas I've dreamed up on how to "meet my needs differently" have come from using principles in De Bono's book.

Next Week: Chapter 7: Redefining Work

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Ryn said...

This book is completely upending my thinking. I live in an area with a very high cost of living, and spend more to share a townhouse with two other people than it costs to rent a one bedroom townhouse in many other parts of the country. Honestly, I don't get value in proportion to the cost of rent. So now I'm seriously contemplating looking for a job in one of the cheaper cities 3 to 4 hours away from here - even though I hate interviewing and I hate moving! Maybe you have some brilliant ideas for saving money on rent when all of the available housing is expensive?

Jill_the_Pill said...

Not re-reading YMOYL (read it years ago), but I've been following your posts with interest. Next you might enjoy revisiting the Tightwad Gazette books.

Daniel said...

Ryn, great, great question, and I don't know the answer. Perhaps there are some other readers with ideas for you.

But your comment touches on how there are so many things that go against you when you live in high cost regions. And it's not only the cost of living: usually income taxes are higher, property taxes and other taxes are higher, insurance costs are higher--and these are all things on top of high housing costs. Usually, even if you get some adjustment in your wage for working a higher-cost region, these other factors often more than cancel it out.

Jill: Thanks, I'm really glad you're enjoying it. I've mentioned that we read YMOYL for the first time exactly ten years ago, and I'm finding that a lot of the habits and value of this book "wore off" over time. We're getting more value out of re-reading it than we ever expected.


chacha1 said...

I recently had a very annoying skirmish with my semi-annual insurance bill (renters and auto). I have hit the upper limit of the deductibles ($1000 for each car and $1000 for all damages except earthquake on the rental policy. They *require* a $12,000 deductible for earthquake damages, mind you - our most likely loss scenario!).

Dropping the coverages seems unwise but I haven't (in a quick Internet search) been able to find a carrier who permits higher deductibles. Trivial, but annoying.

I should be able to get a $2K - $3K deductible if I want to. If it's available for health insurance plans, why not for auto plans? Sheesh.

Little Les said...

Dan - the comments about cost of living made me curious:

"usually income taxes are higher, property taxes and other taxes are higher, insurance costs are higher--and these are all things on top of high housing costs."

Why does this occur? Are the percentage rates of property taxes/insurance higher, or is it just that X% of a more expensive house is more $$? What causes this direct relationship between higher housing and higher income taxes?

Daniel said...

Little Les:
I'm not sure what the relationship is, and I don't know if it's really causal. I was simply making the case that high cost-of-living regions can hurt you in several ways. I'll outline some examples here just to be clear:

1) State income taxes (high cost states like NJ, CA, CT, HI, metro DC, NY etc. can have state tax brackets ranging from 7-12%... on top of your federal taxes).

2) Likewise property taxes (expressed in rate terms) are also typically higher in those regions too.

3) And as you said, the homes themselves are expensive to begin with so the relatively high property tax rate will be applied to a higher base value. So, the home costs more, your mortgage is more, and your taxes are more.

4) Finally, you'll into run other costs too: auto/home insurance costs may be higher in high cost regions, food costs may be higher, entertainment costs will be higher, etc.

I'm generalizing, obviously, and you will find exceptions. For example some high cost regions can be in states with no state income tax (e.g. Texas).

The point I was making was this: an attractive salary in a high cost region may not be as attractive as it appears. People generally get paid more in salary for working in higher cost of living areas, but quite often that increased wage isn't enough once you figure in all of these obvious and not-so-obvious costs.

This would make a good post topic, now that I've basically written it out! :)


Daniel said...

Chacha: One of the suggestions from the book Wealth Without Risk (and I'm sure you can find this advice elsewhere) is to ditch collision and comprehensive coverage on your car once it's a few years old. This is one of those "catastrophic" costs that stop being catastrophic once you're out of debt and have saved up lots of easily available cash.


Little Les said...

This topic would make a very good post! TX has no state income but makes it up with high property taxes, professional service taxes, high excise taxes, etc. My friends who are doctors are mostly concerned with how much their malpractice insurance will be if they move. Costs can vary within regions or cities as well. In our city its all about how much time you want to spend commuting. Live far out from downtown and enjoy low property taxes rates (no county hospital and other city/county services to pay for), low home costs including insurance, ("more square feet for the dollar!"), etc. Live close in and you pay much more for housing, insurance, property taxes, but you'll sit in traffic instead of coaching your kid's soccer team. These are large-ticket items, worthy of serious consideration in a YMOYL study, no?

chacha1 said...

Hi Dan, believe me, we've considered ditching the comprehensive and collision. Our cars are 1995 and 1999, paid off for years, and even if they were totaled in an accident we would not get "replacement" value from our insurer.

But we would get enough to ensure we didn't have to come up with the ENTIRE cost of a replacement vehicle. And Murphy's Law dictates that the month after we drop the coverage, we get totaled by an uninsured driver. Hence, dithering.

Daniel said...

Little Les: I'll see what I can do.

Chacha: I get you. I've done my fair share of dithering on that subject too, thinking for *sure* Murphy's law would kick in the minute I hung up with the insurance company.

You could always drop coverage on just one of the two cars. Perhaps start with the car you like the least of the two. Then you can use reverse psychology to counteract Murphy's law. :)


Little Les said...

I dithered on the collision insurance, too. I finally dropped it, but I'll be so pissed if I lose my sweet banged-up ride that I've had since 2000 (the kids call it the Loser Cruiser). I need a van for just a couple more years, and I've taken good care of its inner parts. Don't want to buy a new car, and don't want some used thing that hasn't been well-maintained.

Juli said...

One money-suck area I identified was grocery shopping. I'd try to buy clean/organic/healthy stuff, but the supply in the stores isn't always reliable, and the prices of organic produce can be high. Plus, I was also hit by the grocery store impulse buys you mentioned in Side Note #4. I'd stop in for a couple items (weekly or more) and end up leaving with something like $40 of groceries each time.

It was one of the biggest areas of spending for me, and although I felt pretty good about the value (I do care a lot about proper nutrition), I wanted to see if there would be a way to better optimize the amount of nutrition I could get for my dollar. So I signed up for a home-delivery from a CSA. Right now, the box comes only once a month (trying it out... will probably switch to a "twice a month for less per box" option).

Here's why it turned out to be an awesome decision:

* For $33, I got WAY more organic fruit and veggies than I was getting for that price in a store.

* I didn't have the same impulse buying opportunities (there are ways to add-on items to your order, but you see your total price go up in real time as you add, unlike in the grocery store, so it discourages impulse buys for me).

* It was delivered to my doorstep! No driving to the store, no parking lot madness, no waiting in grocery lines... hallelujah!!

* The quality was amazing - even better than my fancy local health store.

* It's going to get me eating more in alignment with what's naturally growing locally during each season, which also means I'm supporting local farmers - yay!

* It was fun to try out some new stuff I wouldn't necessarily have picked out for myself (although, awesomely, you can log into their website the week before a delivery, and opt-out of items you REALLY don't want, as well as create a list of permanent opt-out items you'll never receive).

I had tried this CSA some time ago, but the quality wasn't as good then, and they didn't have the option to customize your items. I had heard that they had improved, but it took YMOYL's purchase tracking to make me take a second look at where my money was going, and look for better options. I'm so glad I noticed the grocery-store pattern and gave the CSA another chance! The quantity, value, and convenience I got is much higher for the dollar than doing my own shopping at the store. And since the internet makes it easy to customize what you get, there's no concern about wasting the food items you simply wouldn't use/buy. :)

One other random note, about keeping cars: I've had mine for so long, it never really occurred to me that I'm saving money on my DMV registration each year. I saw the registration fee for someone else's car (a newer car, purchased by loan), and it was over TWICE my fee. Sure, that's only a once-per-year fee.. but it was a difference of about $130... and I can surely find a better use for that money than a DMV registration on a fancy car!! o.O So that was an unexpected realization of yet another (recurring) benefit of adopting frugal habits over the long-term. :)

Daniel said...

Great comment Juli, thank you. That is some excellent solution-seeking!